Research & Analysis

Financing Small Enterprises

In the current political and economic environment, jobs are at the center of the political debates in both developed and developing economies. There are many expectations that small enterprises can create new jobs, although recent studies suggest that small enterprises contribute more to the employment share in low-income economies than in high-income countries. International development agencies want to promote and finance small enterprises, while the G20 is also committed to improving access to finance for small businesses in developing countries.

Embedded in these efforts is the assumption that access to finance is a key constraint to small business expansion. In this Focus Note, we examine the experience and role of microfinance institutions (MFIs) in serving small enterprises. We start with an overview of small enterprises and their financial needs, suggesting that they require more than just loans. We then analyze the current and potential role of MFIs in serving this market. Annex 2 provides a synthesis of a literature review on the contribution of small businesses to job creation and economic growth.

In December 2011, we surveyed more than 300 MFIs and networks (see Annex 1). We asked about their small business products, their risk assessment methodologies, and their internal capacity (staff resources, management information systems, etc.). We also examined their motivations, obstacles, and success factors for serving small enterprises.